The Organisation for Economic Cooperation & Development (OECD) on Wednesday said India's growth will “pick up somewhat this fiscal, underpinned by buoyant corporate sentiment and demand for infrastructure spending”.
In its semi-annual outlook released in Paris, the inter-governmental think-tank of rich countries said India's growth slowed to a more sustainable pace towards the end of 2010, following a strong post-crisis rebound, driven by a surge in private investment. It said tighter monetary policy and a modest reduction in the deficit would help cool demand somewhat.
After moderating towards the end of 2010, India's inflation has veered up again and remains high, it said, adding that inflationary pressures have become more generalised with non-food prices accelerating.
Suggestions
While India has passed the recent increase in world oil prices through into domestic petroleum product prices only to a limited extent, it cautioned that “higher energy subsidy outlays are likely in 2011”.
A renewed commitment to reducing subsidies is needed to lower burden on public finances, while efforts to better target subsides on the needy should be stepped up, it suggested.
OECD also recommended further liberalisation of foreign direct investment in the retail sector to promote competition and help modernise supply chains, thereby reducing food inflation pressures.
It reckoned India's real GDP growth at market prices in 2010-11 fiscal at 9.6 per cent, which would be 8.5 per cent this fiscal and 8.6 per cent in 2012-13.
Global GDP outlook
Taking a broader canvas, it said world gross domestic product is projected to increase by 4.2 per cent this year and by 4.6 per cent in 2012.
In the US, activity is projected to rise by 2.6 per cent this year and by a further 3.1 per cent in 2012, while in the Euro area growth is forecast at 2 per cent this year and next. Stating that the current juncture is delicate for the global economy and the crisis is not over until developed countries' economies are creating enough jobs again, the OECD Secretary-General, Mr Angel Gurria, said, “there is also some concern that if downside risks reinforce each other, their cumulative impact could weaken the recovery significantly, possibly triggering stagflation in some advanced countries”.
OECD also cautioned emerging economies to pay “particular attention to the danger of overheating, which is increasing inflationary pressures, and in some cases, widening current account imbalances”.